AIDC says Treasury’s withholding of municipal funds punishes poor households

The Alternative Information and Development Centre (AIDC) has criticised the National Treasury’s decision to withhold July 2026 equitable share transfers to municipalities, saying the move unfairly punishes poor households and fails to address deeper structural problems in municipal finance.

What Treasury did

Treasury temporarily withheld July 2026 Local Government Equitable Share transfers to 69 municipalities to enforce fiscal discipline and address alleged non-compliance with the Municipal Finance Management Act. The withholding initially affected approximately R13.5 billion of the R110 billion allocated for the 2026/27 financial year.

The National Treasury has since reinstated funding for 42 of the 69 municipalities, while the remaining municipalities continue to have allocations withheld.

AIDC response: a “false solution”

In a statement, the AIDC described Treasury’s intervention as a “false solution” to municipal financial distress and said the country’s municipal funding model is fundamentally flawed. The organisation acknowledged governance failures, including corruption and poor financial management, but said these are part of a broader structural problem.

Funding model under fire

The AIDC criticised an approach that assumes municipalities can generate around 90% of their own revenue through property rates and service charges under a full cost recovery system. The organisation said this model has failed where applied at scale, contributing to rising municipal debt, deteriorating infrastructure, service disconnections and widening inequalities between wealthier and poorer municipalities.

Impact on vulnerable households

The AIDC warned that withholding equitable share funding will have immediate consequences for vulnerable households that rely on municipalities for free basic services, including water and electricity. The organisation said the intervention risks depriving residents of essential services while doing little to resolve long-term financial instability.

Debt, affordability and revenue flows

The AIDC disputed Treasury’s characterization that growing municipal debt to Eskom is mainly the result of poor financial discipline. Instead, the organisation argued that debt reflects an inability among households and businesses to afford sharply rising electricity and water tariffs.

It also said municipalities now retain a much smaller share of tariff revenue than before, with most income flowing directly to bulk suppliers such as Eskom and water boards. Penalising municipalities for unpaid Eskom accounts without addressing poverty and affordability, the AIDC warned, will deepen energy poverty and increase service disconnections.

Evidence cited

The AIDC pointed to evidence presented to Parliament by the Financial and Fiscal Commission (FFC) showing that the 69 affected municipalities collectively owe about R97.4 billion to creditors, while they are themselves owed around R217.9 billion by households, businesses and other organs of state. The organisation said this demonstrates that municipalities are also significant unpaid creditors.

Legality and calls for a different approach

The AIDC questioned the legality of Treasury’s decision to stop equitable share transfers and cited comments attributed to FFC chairperson Dr Patience Nombeko Mbava, who reportedly described the intervention as a “blunt instrument” that does not distinguish between municipalities with different financial challenges. Mbava reportedly said unconditional equitable share allocations can lawfully be stopped only by Parliament.

Concluding its statement, the AIDC said the local government crisis cannot be resolved through austerity or withholding funding. It called for a publicly financed and publicly delivered model for essential services that guarantees universal access to water, electricity and sanitation while addressing the structural inequalities undermining municipal sustainability.

“[Withholding] risks depriving many residents of essential services while doing little to resolve municipalities’ long-term financial instability.”